Business

Rio likely to cut more jobs to contain costs

Rio Tinto has warned it may cut more jobs from some of its Australian mining operations, as it seeks to rein in "unsustainable" cost increases.

In an investor update, the mining giant also says it expects growth in China's steel demand to peak at around one billion tonnes by 2030.

While prospects for the US and European economies remain uncertain, Rio Tinto is "cautiously optimistic" about China.

It expects China's economic growth to return back above 8 per cent next year.

Rio Tinto has refused to confirm how many jobs will go as it plans to slash costs further at its global mining operations.

The company is targeting more than $US5 billion in cost savings from reducing operating and support expenses over the next two years.

It is also planning to cut around $US1 billion from exploration and evaluation next year, and says its capital spending will also taper off from current levels in 2013.

Rio Tinto's chief executive, Tom Albanese, says the company is trying to rein in the "unsustainable" cost rises of the past few years.

He says the cost cuts are most likely to come at its Australian coal operations, and its aluminium business.

"Any business that's been in ups and downs of cycles recognises that difficult decisions need to be made," Mr Albanese said.

"We will treat those difficult decisions with the necessary respect both to the individuals and to the communities that they may operate in. We will engage at the individual community level. We will not provide a number [of job losses]."

Mr Albanese says the company is looking much more closely at the cost of any new coal projects in Australia before proceeding.

"The burden of proof for an Australian coal project will be its ability to demonstrate that it can operate cost competitively in a tougher world stage and it can be developed in a manner which is capital friendly," he said.

"The increase that we've seen in capital costs in Australia in the coal industry over the past five years really do need to be rolled back to attract capital."

"Rio is a business that not only has huge production upside over the next few years but is very well placed in the long term as these forecasts materialise," he wrote in a note on Rio's update.

"Its iron ore assets are in perhaps the most attractive geography in the world, producing at around $US24.50 per tonne. Even if the iron ore price does come back to $US80 there is a very large buffer margin and production is expected to rise to around 290 million tonnes per annum in 2013."